The travel industry is looking forward to 2022. A majority (60 to 70 per cent) of the population in advanced economies will be vaccinated by mid-2022, according to a report from the Economist’s Intelligence Unit, and widespread vaccinations will happen even sooner in some popular tourist destinations, including Aruba, Bermuda and the Maldives. A recent Simon-Kucher & Partners survey confirmed that vaccinations and the lifting of travel restrictions are the two biggest reasons impacting travellers’ decisions to travel abroad.
Insurance becomes mandatory
Increasingly, countries are making it mandatory for visitors to have travel insurance for Covid-19 related medical and hospitalisation costs. Dozens of countries, including Singapore, Israel, Thailand, Costa Rica and Tahiti have introduced this new requirement following the pandemic.
Mandatory travel insurance already impacts many people. Since 2010, citizens from more than 100 countries, including Russia, China and South Africa, have been required to have travel medical insurance as part of their visa application process to visit any one of the 26 Schengen Area countries, which include France, Italy, Germany and Greece.
When global travel restarts, we can expect an explosion in demand for travel insurance policies designed to meet mandatory requirements. Insurers are therefore being presented with an opportunity that goes beyond mandatory medical policies. Offering add-on coverages like baggage, repatriation, or trip cancellation will increase premium income and provide travellers peace of mind in an uncertain environment.
Travel insurance confusion
The demand for travel insurance is expected to grow at a healthy pace starting in 2021. Forecasters expect the market to increase anywhere from US$12.61 billion over the next four years to $40 billion over the next seven years.
Despite rising demand for travel insurance, consumers are confused about what these policies actually cover. In a 2021 survey of 2,800 travel insurance customers, a UK-based consumer group found a wide gulf between what customers thought was covered and the likely reality. For example, around half of respondents in the survey said they would be covered for cancellations in the event of another lockdown, when in fact most policies do not cover losses resulting from alerts and warnings issued by government entities. This confusion is in line with Simon-Kucher research, which shows most customers (75 per cent) have trouble understanding commonly used insurance terms and definitions.
Insurers and intermediaries must work harder to address confusion and misconceptions when it comes to travel insurance coverage. Statements prominently placed and clearly stating, ‘fear of travel is not a covered risk’ or ‘trip cancellations in response to government lockdowns or travel warnings are not covered risks’ can go a long way. FAQs addressing areas of the greatest confusion can also be an effective solution.
Above all, travel insurers must exceed minimum readability standards set by regulators. By clearly defining what they intend to cover and not, insurers can avoid costly legal disputes and reputational hits. Nobody wants a repeat of 2020 when customers flooded travel insurance companies with complaints after insurers rejected claims for Covid-19-related losses. Some of these complaints have turned into expensive lawsuits winding their way through the American legal system. Rejecting claims also creates reputational risks that impair new business production. Customer trust is a critical component in the insurance purchasing decision. If customers don’t trust that an insurer will fulfill their obligation when claims occur, they will take their business elsewhere.
The pandemic has forever reshaped the travel industry. Not only have the risks associated with global travel changed, but new types of travellers and customer segments are emerging.
For example, 54 per cent of respondents in the American Express 2021 Global Travel Trends Report said the freedom and flexibility of being able to live and work while travelling the globe is more appealing after the pandemic. For these digital nomads, traditional travel insurance policies – which are short in duration and rarely renewed – may not fulfill their needs. These location-independent workers, who use technology to perform their jobs and want to work remotely from foreign countries, need travel insurance coverage for longer durations with the option to renew. This is also the case for senior nomads, another emerging class of travellers, many of whom continued travelling amidst the pandemic.
We can expect increased demand from travel providers, eager to win back customers. Insurers will also see an increase in policies sold via travel agents and travel advisors, as travellers turn to professionals to help them navigate the complex and ever-changing global travel landscape.
Insurers must keep their ears close to the ground and leverage data-driven intelligence to understand how global travel behaviours and motivations are evolving. They must be ready to pivot quickly with enhanced product offerings and new distribution strategies to better serve customers, corporate buyers and partners.
Emerging travel risks
Insurers must also be cognizant that the pandemic has led to economic turmoil, widespread unemployment and social disruption. These are fertile grounds for crime.
In an April 2021 report, the European Union notes an increase in organised crime including mobile groups focused on activities such as robberies, burglaries, pick pocketing schemes, ATM attacks and theft of high-value items. Crime has similarly increased in the US; major cities including San Francisco, New York and Chicago are all reporting surging crime as pandemic restrictions lift and tourism picks up.
Travel insurers must start acquiring the ability to more precisely understand their liabilities in order to accurately price travel-related policies. This includes using machine-learning, big data and real-time intelligence to incorporate more data elements about the destination, trip, crime rates and the individual's risk profile.